Lessees as Purchasers? Commercial Tenants to Receive Protection from CERCLA Liabilities
Commercial tenants might now qualify for certain environmental liability protections traditionally limited just to property owners, due to revised EPA guidance concerning CERCLA’s Bona Fide Prospective Purchaser (“BFPP”) defense.1 See Memorandum from the Environmental Protection Agency: Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision (Dec. 5, 2012) (hereinafter “EPA Guidance”). Ordinarily, under CERCLA, owners and operators of commercial spaces, among other persons, are potentially liable for costs due to the release or the threatened release of hazardous substances from their respective facilities. 42 U.S.C. § 9607(a). Commercial lessees often fit the “operator” role, as they work directly on their facilities’ premises. See United States v. Bestfoods, 524 U.S. 51, 66-67 (1998) (defining “operator”). Because liability for CERCLA violations is strict and joint and several, commercial tenants who in no manner cause the release or the threatened release of hazardous substances could be on the hook for penalties despite their innocence—no intentional wrongdoing, not even proof of negligence, is required to hold persons liable for CERCLA penalties. See Harley-Davidson, Inc. v. Minstar, Inc., 41 F.3d 341, 343 (7th Cir. 1994). The BFPP defense (parameters defined below) traditionally existed to protect certain purchasers of contaminated (or “brownfield”) properties, but its role may be expanding to protect tenants as well.
The BFPP statute works as a counterpart to CERCLA’s otherwise pervasive liability concerns: with the BFPP defense, it’s possible for a buyer to take ownership of brownfield properties without significant worry over CERCLA liability. Certain states might have analog statutes containing a similar BFPP protection, but the new EPA guidance concerns solely the federal version.2 The following is an itemization of what must be confirmed or what an entity must otherwise do before it becomes eligible for BFPP protection:
1. All disposal of hazardous substances at the facility occurred before the entity acquired the facility; while the entity must also
2. Make “all appropriate inquiries” into the previous ownership and uses of the property in accordance with “generally accepted good commercial and customary standards of practice”3;
3. Provide legally required notices regarding any release of hazardous substance at the facility;
4. Take appropriate care with respect to any hazardous substances found at the facility—e.g., stop continuing release, prevent threatened future release, and prevent exposure to existing hazardous substances;
5. Provide full cooperation, assistance, and access to those conducting response actions;
6. Comply with institutional and engineering controls while not impeding the effectiveness of such controls;
7. Comply with governmental requests for information and subpoenas; and
8. Not be potentially liable for response costs, be affiliated with a responsible party (other than by reason associated with the conveyance), or simply be the reorganized entity of a responsible party.
42 U.S.C. § 9601(40); Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431, 498-503 (D.S.C. 2011).
Previously, commercial lessees were boxed-out of this protection because they are not “purchasers.” The statute requires that there be a purchase, which imagines a conveyance or some other transfer of ownership having occurred. The modern commercial lease does not position the tenant to satisfy BFPP status because such leases are now more designed to have tenants occupy improvements to the land (i.e., the building) rather than the land itself. See Humphrey v. Byran, 850 N.E.2d 1044, 1047-48 (Mass. 2006). Previously (and still true), tenants of landlords satisfying the BFPP criteria could assume their landlords’ BFPP status “as long as the owner maintain[ed] its BFPP status and: (1) all disposal of hazardous substances at the facility occurred prior to acquisition . . . ; and (2) the tenant [did] not impede the performance of a response action or natural resource restoration.” See EPA Guidance. However, if that landlord were to squander its BFPP status, under the previous EPA interpretation, the tenant would have lost all BFPP protections as well.
Now the BFPP protection is more fully available to commercial tenants in two specific ways. First, “if a tenant has derivative BFPP status through the owner and the owner loses its status through no fault of the tenant, the EPA may exercise its enforcement discretion to treat the tenant as a BFPP under CERCLA § 107(a)(1).” See EPA Guidance. The previous EPA guidance on this derivative status put tenants at the mercy of their landlords’ behavior, while the EPA’s new interpretation puts tenants in the position to keep the BFPP liability protection irrespective of their landlords’ bad behavior—a definite bonus for a tenant who worries about its landlord’s environmental decisions.
Second, on a site-specific basis, the EPA announced that tenants may qualify for BFPP status even if their landlord never acquired such status—that is, the tenant, despite it not ever acquiring ownership of the property in question, could derive BFPP protection of its own accord. This second way conflicts with the BFPP statute’s text, because now the EPA effectively reads commercial lessees as “purchasers.” Yet the new EPA guidance suggests that these protections could, on a case-by-case basis, be available to lessees despite that lessees may not purchase anything at all. Though the EPA’s new guidance conflicts with the traditional reading of the BFPP protection requiring ownership, it nonetheles ssets forth positive policy in that it could alleviate some liability risk to commercial tenants seeking to lease contaminated properties.
However, that does not mean commercial tenants assume BFPP status simply by virtue of them not being the reason for contamination. Such tenants must perform/qualify for the statutory due diligence steps itemized above, just as their landlords would.
The new guidance is certainly good news for commercial lessees. While the EPA’s interpretation lacks harmony with a plain reading of the statute and would only be applied on a site-specific basis, the fact that tenants might be eligible for protection from potential severe CERCLA penalties in certain instances, alleviates some worry over CERCLA’s severity for those interested in or occupying contaminated properties. This makes brownfield properties more viable options for commercial tenants because they may be eligible for what is effectively a good behavior safe harbor.
In any event, owners and occupiers of concerning properties should be aware that, despite CERCLA’s strict liability nature, the ultimate allocation of liability may be apportioned by the court among other responsible parties, Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 613-14 (2009), and those sued under CERCLA in cost-recovery actions may then bring contribution claims. 42 U.S.C. § 9613(f). It’s also important to note that CERCLA involves hazardous substances. Certain federal environmental statutes cover different things. The definition of hazardous substances, for example, does not include petroleum. Id. § 9601(14). Yet the related Response Conservation and Recovery Act (“RCRA”), which regulates hazardous waste disposal, does cover petroleum, because the definition of hazardous waste includes it. 42 U.S.C. §§ 6903(5), (27).
1 CERCLA stands for the Comprehensive Environmental Response, Compensation, and Liability Act.
2 Wisconsin, for example, has codified a state analog to CERCLA (Wis. Stat. ch. 292)—although, Wisconsin does not even maintain a BFPP liability protection analogous to the one created by 42 U.S.C. § 9607(r).
3 See 42 U.S.C. § 9601(35)(B). The EPA sets the standards for what “all appropriate inquiries” the purchaser or lessee must perform. See 40 C.F.R. § 312.21.